The big news over the weekend was the nuclear test by North Korea. Have they crossed the red line this time? Saying they have isnt enough. The market doesnt care about sanctions and headlines about keeping all options open. It has been burnt too many times selling risk on this. So the risk off open to this mornings trading can be summed up as subdued. S+P is only down -0.3%. It seems to get a really big risk off move we are going to need a military strike. That happens and USDYEN will break the critical 108.10 support and S+P will be sub 2400 quickly. However its a low probability outcome… so be careful aggressively selling risk.
Other big news on Fri was payrolls missing on all fronts and the ECB noise delaying QE taper details to the December meeting.The payrolls miss will keep US yields in check and USDYEN the most sensitive to US yields has a topside ceiling. Add to that ceiling a safe haven bid for YEN and the 110.50/111.00 resistance area becomes rock solid resistance.
The ECB delaying the QE taper details saw Euro punished Fri. No surprise with market positioning extreme long. 1.2000 has been well and truly rejected with no daily closes above and a weekly close well isolated from the highs and at the extreme lows for the week. The risk for Euro now is a continuation of the clean out as what the market has been pricing in for months looks like not playing out. ECB meeting is on Thursday and imagine the longs will look to lighten up going into this risk event.
Putting USDYEN which has a topside cap and downside risk with EURO that also has downside risk together in a short EURYEN position now looks quite attractive. Technically we have had a bearish gap lower on the open this morning which also broke up trend line support on the daily chart. The market is gap filling and retesting the TL break. Towards 130.70 is the sell zone with stops back above 131.30. First obvious target downside is 129.60 where the 50 DMA comes in. Below that support does gap away. If the trade does get traction then range lows towards 128.00 come into play. Short EURYEN also covers a risk off move… so if anything did escalate with North Korea it would capture this.